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To: Zeev Hed who wrote (55058)	9/25/2000 12:39:33 PM
From: Bilow	Read Replies (1) \| Respond to of 93625

Hi Zeev Hed; Re cap-ex and AMD. I think what Dan3 was saying is that AMD spent the cash flow from their other fabs to build Dresden. It was well known (and commented upon frequently on the AMD threads) that the depreciation of Dresden had not yet hit the profit line. The nature of the original question was, "where did AMD get all that money for Dresden when they were losing money?" Dan3's answer was along the line of "AMD had cash flow, even though they had negative earnings." -- Carl

To: Zeev Hed who wrote (55058)	9/25/2000 8:57:56 PM
From: Dan3	Read Replies (1) \| Respond to of 93625

Re:That is not how accounting works, you cannot charge cap-ex to "expenses", you capitalize these and can charge depreciation on that asset only when the assets are put into service. The bricks and mortar at Dresden are a small part of the total investment. Even a big building doesn't cost anywhere near $2Billion to build. The tools are a greater part of the FAB's cost, but a great part of the cost of bringing up a leading edge FAB is R&D, and paying the salaries of hundreds of people who are perfecting those processes necessary to the FAB's operation and putting the place together. Many of these costs are grey area costs in terms of capital cost or expense and many companies would have capitalized most of those expenses. AMD indicated last year that their R&D budget would be falling this year as the tasks associated with developing the multitude of new processes that they have put into place in Dresden are completed. They stated that those costs would be replaced in the expense report with roughly similar depreciation costs. And the numbers last quarter were consistent with that guidance. Accounting for capital intensive industries is tricky, and often misleading. Last year, Intel, with about 8 large FABs depreciated $3,200 million while AMD, with 1 large FAB (at the time) depreciated $515 million. AMD is more aggressive in its treatment of investment costs than most companies (as it should be since its plant becomes obsolete very quickly - but then so should Intel and it appears that they aren't). The bottom line is that, despite pretty much doubling the size of the company, AMD's additional depreciation costs for the new FAB were estimated at about $50 million / year. Bottom line is, AMD's undepreciated plant and equipment went from $4.4Billion in 98 to $4.7 Billion in 99 to $5Billion in Q2 2000 when they began depreciating the new plant. I'm not quite sure how they did it <grin> but they appear to have added that $2Billion dollar FAB for $0.3 Billion in non-current costs. Regards, Dan